WEC - WEC Energy Hasn't Been This Attractive In 10 Years - Time To Load Up

2024-03-06 11:45:36 ET

Summary

• With the broader market focused on the future potential of artificial intelligence, traditional value stocks such as regulated utilities are currently attracting little to no interest.
• WEC Energy Group is undoubtedly one of the best-run utilities in the U.S. - and yet WEC Energy stock hasn't been this cheap in 10 years – a classical contrarian opportunity.
• In this article, I'll share the three main reasons why I believe WEC Energy stock is an extremely promising investment for long-term, income-oriented investors, like myself.
• In addition, I will weigh the current headwinds and provide an update on WEC Energy's regulated portfolio and financial stability.
• I recently opened a position in WEC stock, which I immediately brought to the size of my Duke Energy and The Southern Company stock positions in terms of invested capital.

Introduction

It's been over two years since I last covered WEC Energy Group, Inc. (WEC ) when I compared it to my two long-term utility picks, The Southern Company ( SO ) and Duke Energy Corp. ( DUK ). Back in November 2021, interest rates were still extremely low and WEC stock was trading at around $90, which at the time equated to a dividend yield of 3.0% and an enterprise value to EBITDA (EV/EBITDA) multiple of 17.2 - quite expensive for a utility, despite its high quality and solid long-term earnings and dividend growth.

My regular readers know that I am not a particular fan of investing in utilities (IDU), mainly because of their huge capital expenditure and associated high debt levels ( see this article ). Given the transition to a "greener" energy mix that requires significant additional investments, it's easy to see why utilities may not be the best investment going forward, at least from a shareowner's perspective. Of particular note is the fact that utilities typically do not generate free cash flow. However, it can be argued - rightly in my opinion - that some of the capital expenditure is attributable to growth and not maintenance-related investments....

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